Foreign AID: Does India need it?

The moneybags in Washington - belonging to the same tribe as the famous gnomes of Zurich - are once again flashing green signals to New Delhi. Their message is: come and help yourself.

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india today digital

May 7, 2014

ISSUE DATE: December 31, 1977

UPDATED: April 6, 2015 15:04 IST

The moneybags in Washington - belonging to the same tribe as the famous gnomes of Zurich - are once again flashing green signals to New Delhi. Their message is: come and help yourself. The World Bank has agreed to give a billion dollars (Rs 860 crores) every year to India for farm development programmes.

Substantial aid from the same bottomless barrel - placed around 300 million dollars (Rs 258 crores) - is expected for the construction of food storage facilities, including those already constructed.

World Bank aid will also shortly flow into the pipeline for slum improvement and housing construction. All these aid programmes have one thing in common - they have no foreign exchange content and their financing has to be in rupees. The question naturally arises: do we really need all this help?

Foreign aid was initially meant to bridge the external payments gap arising out of essential imports required for building up the industrial infra-structure. Later, the emphasis shifted from the development of the economy to its maintenance and the so-called non-project aid was used for the purpose.

Now that the country is able to pay its way in the foreign markets and has in fact more foreign exchange than it can use, the clever officials in the North Block have discovered a new hurdle - the alleged shortage of rupee resources.

Since their case is palpably weak, they are trying to sell the package through such impressive-sounding phrases as upliftment of the poor, employment generation, and rural development. And the green signals in Washington keep on flashing.

In fact, there is increasing evidence that aid utilization is not as effective as it used to be, possibly because aid is not really necessary. Britain, for instance, offered 144 million (Rs 230 crores) for 1977-78. As usual, this was in the form of grants, but part of it was tied aid. But India is having so much trouble using the tied aid that Britain has threatened to cut it drastically next year.

In the case of Canada too, a good part of the assistance remains unused and most of the balance is likely to be diverted elsewhere. Incidentally, the Canadian aid was used for importing fertilizers and rape-seed oil this year, something that could have been done with India's own foreign exchange which is gathering dust in the vaults of the Reserve Bank.

Under utilization of aid is not a new problem but it is assuming serious proportions. It has been estimated that the total unused bilateral aid from 10 major aid-givers up to March this year is almost three times the net aid (from-these countries) that was used last year.

In short, a great deal of capital - around Rs 1,000 crores - has been lost by default. The government seems unable to think up ways of using the aid that is available, let alone the foreign exchange reserves that are now almost a burden. Why are we then still hankering after aid and our officials making those needless trips to Washington and other financial capitals?

Firstly, there is the human aspect which is largely ignored in such calculations. Most senior government officials, especially those from Economic Ministries, have had a spell or two in Washington (World Bank) or New York (United Nations) and as retirement approaches, another profitable spell, they think, may not be a bad thing.

One of the ways of keeping the communication channels open is through regular visits to former colleagues - listening in on the grapevine, as it were. There is hardly a senior official from the Finance Ministry, for instance, who has not been favoured with long spells of duty with the World Bank or the United Nations.

The new governor of the Reserve Bank has just returned from a five-year spell with the U.N. and in fact delayed taking over his new post until he had made sure of his entitlement to a fat U.N. pension. His predecessor in the office has now promptly left for Washington as an executive director of the World Bank.

A banking department official, a member of the new ruling mafia, whose sudden promotion has led to considerable heart-burning in the Finance Ministry and elsewhere, is more of a World Bank man than a Government of India official. These persons are all honourable men, but they are men nonetheless.

If persons who have held World Bank jobs were debarred from holding any office in the Government for five years, the Bank would lose a powerful weapon in its armoury to influence national policies, for money being what it is, the Bank is as keen to lend it as, or even more so than, the borrower.

A glance at the Shah Commission's proceedings shows how easily Indian officials can be "persuaded" to do anything the authorities might want them to do, provided their self-interest is safeguarded. The dangling offer of a cushy job at the other end of the line is a powerful incentive that the World Bank with its keenly honed political instincts - it is after all a political institution - has not been loath to use.

What is really disturbing is that it is the aid donor who decides that investment in India should take place in a particular sector in a particular manner, instead of the other way round.

What then happens is that the donor gives the funds for priorities of its own choosing and then India sets apart its rupee resources while the foreign exchange given by the donor piles up in the official account.

It is as if the priorities for our plans were set not by the Government but by an outsider - a highly disturbing state of affairs and one that may lead to all kinds of complications.

It is known, for instance, that the World Bank prefers the development of roadways to railways, even though this is not in India's interest as it would only increase dependence on a scarce fuel, even though the railways are more efficient, both fuel-wise and cost-wise. Is the World Bank's preference for roadways due to its increasing reliance on the oil-rich OPEC countries for funding its lending operations?

The Janata Government is now in an envious position to refuse aid, at least aid with strings.

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